Is Walmart Good for America? 1

IS WALMART GOOD FOR AMERICA?

Approved: ______Date: ______

Is Walmart Good for America? 2

IS WALMART GOOD FOR AMERICA?

A Seminar Paper Presented to The Graduate Faculty University of Wisconsin-Platteville

In Partial Fulfillment Of the Requirement for the Degree Master of Science in Integrated Supply Chain Management

By Rana Nazzal 2013

Acknowledgments

Is Walmart Good for America? 3

I would like to thank all of whom supported me in my journey to ultimately complete my Master’s program and Supply Chain research project.

Thanks to members of the University of Wisconsin at Platteville for their guidance, quality teaching and constant supervision in completing the Master’s requirements and developing my final research project.

Also, special thanks and gratitude to my family members who supported me every step of the way over the past two years to get to where I am today.

Finally, deep appreciation to Professor Wendy Brooke for the support and exceptional guidance and learning experience during the course of my research project.

Table of Contents Subject Pages Abstract 5 Is Walmart Good for America? 4

A Glimpse at WMT History 5 Table (1) Walmart Growth by Decade 6 Figure (1) Walmart Quarterly Earnings Since 2005 7 Table (2) Comparison of Retailers Sales in 2006 7 People Make the Difference 8 Supply Chain Management 8 The Merchandising Strategy 8 Technology – the Ultimate Change Agent 9 POS, UPC and EDI 9 Radio Frequency Identification (RFID) 10 Retail Link Data Base 12 Figure (2) WMT Retail Link Data Base 13 Reinventing the Supply Chain 14 Creating Supplier Relationships 15 Purchasing Strategy 17 Negotiation Strategy 18 Logistics Operations 19 Distribution 19 Cross Docking 20 Retail Strategy 20 Inventory Management 21 Expansion Strategy 23 Figure (3) Walmart Expansion Map 24 Green Sustainability 24 Green initiatives 25 Green Packaging 25 Environmentally Friendly Products 27 Reverse Logistics 27 Sustainable Product Index 28 Global Responsibility Report 29 Controversial Impact on America 31 Job Creation and Low-Wage Approach 31 Ethical Practices 34 In Defense of the Controversy 35 Job Creation 35 Economic Empowerment 36 Factual Research and Analysis 37 Job Growth and Creation 37 Impact on Wages 38 Impact on Local Businesses 38 Impact on Taxes 38 Impact on the Environment 38 Impact on Economic Growth 38 Is Walmart Good for America? 5

Controversies Hold True 39 Job Creation 39 Walmart’s Wages and Benefits 39 Competitive Advantage 40 Violating the Law and Social Rights 41 Table (4) represents data in which WMT’s female employees in hourly 41 Table (5) WMT’s female employees are disproportionately in hourly jobs 42 instead of salaried jobs in every district examined Table (6) WMT’s female employees make less than men in every district 42 examined Recommendations from the Democratic staff of the U.S. House Committee 43 on Education and the Workforce Commitments in Economic Renewal 43 Creating jobs to Grow the Economy 44 Honoring the Nation’s Veterans 44 Driving More American Manufacturing 44 Final Remarks 45 Appendix A Walmart Way Principles 47 Appendix B Financial Review 49 Appendix C Interesting Facts about Walmart 51 References 52

Is Walmart Good for America? 6

Is WMT Good for America?

Abstract

As the largest American retailer in the world, Walmart (WMT) continues to make unprecedented revenues and competes to be the first among the 500 Fortune companies since its inception in the 1960’s. By taking a look into WMT’s world of Supply Chain, the business’ impact on reinventing this industry in America is evident. Due to WMT’s large size and wide range of consumer goods it’s able to supply consumers, WMT’s well-being has been more economically and politically connected. The purpose of this debate is to reach a conclusion on its effect as a business on the U.S. economy by examining various business components including business objectives, supply chain and logistics practices, environmental and structural impacts. This analysis examines the company’s historical supply chain development and explores powerful aspects of their logistics and transportation system. Most importantly, the company has been awarded a reputation of being the leading cause in economically reviving smaller towns in the U.S, yet there are heating controversies and conflicting views about whether WMT has been contributing towards the U.S economy.

A Glimpse at WMT History The WMT story as narrated by Soderquist, the retired former Vice Chairman and Chief Operating Officer for WMT took this opportunity to narrate WMT’s inside story and growth history on the hands of owner and founder, Sam Walton. Soderquist described the company’s true culture, which was a lot more than what the end consumer observed from outside the box. WMT established personable experiences with its customers, and an effective method to maintaining relationships with suppliers and end consumers. Additionally, Soderquist addressed how the company reinvented the supply chain industry and further perfected its supply chain network. Despite the controversy surrounding the company’s way of doing business, the retired COO appreciated the public feedback on the business and that this feedback had been seen as constructive criticism to make the company better (Soderquist, 2005). Is Walmart Good for America? 7

Sam Walton once had a dream to serve people well and impact people’s life for good by building a winning team to support his family yet honor his lord, and have fun with it all. Walton started out by treating people well, seeking higher value items and offering customer deals from his small store in Newport, Arkansas. Although he lost his lease in Newport, AK, he kept looking for a new lease and found one store in Bentonville, AK. Sam had passion for his dream that was becoming a reality. He continued to greet and smile to his customers. He sought to learn their needs in products and services that he offered to them. With a vision to open more stores, the business grew until he couldn’t manage the business volume by himself and asked his brother Bud to join in. By 1962, both brothers had already created the largest regional retail chain of 15 stores (Soderquist, 2005). Sam reached out to his customers to understand their needs. He learned that customers across the nations needed a larger assortment of goods at lower prices without having to drive long distances. Although his supplier didn’t agree with franchising larger stores and selling him larger quantities at lower prices, Sam pursued his concept of WMT discount stores despite the risk involved. WMT principle 1: “Every successful venture begins with a dream that requires determination, passion, and willingness to grow if it is to be fulfilled.” (Appendix A – WMT Way Principles) (Soderquist, 2005). Wal-Mart was voted “Retailer of the Decade” in 1989, its distribution costs were estimated at 1.7% of its cost of sales, as compared to the competition. By 1991, the WMT supercenter concept had grown exponentially, and the growth plan created for national, as well as international markets including Mexico. With a committed vision to improve the standard of living for everyday people through great products at lowest prices, sales continued to grow for the company (Soderquist, 2005). By Decade Total Revenue # of Stores # of Associates 1/31/1970 $30.8 million 32 900 1/31/1980 $1.2 million 276 21,000 1/31/1990 $25.8 billion 1,528 275,000 1/31/2000 $165 billion 3,985 1,140,000 1/31/2004 $256.3 billion 4,906 1,500,000 Table (1) Walmart Growth by decade (Source: Soderquist, 2005, p.10)

Is Walmart Good for America? 8

Figure (1) Walmart quarterly earnings since 2005. (Source: Northwestern University, 2013)

With operations spanning 15 countries in 2006, WMT was already the world’s largest retailer. The company’s well developed supply chain network had enabled its growth. By the year 2006, the competition was catching up by following WMT’s footsteps. The competition clearly borrowed and redefined WMT strategies to fit their network. In 2006, most retailers were using bar codes, connecting better with suppliers and running self-distribution. Retailers such as WMT and Costco never stopped competing on both national and global level. The 10 biggest global retailers in 2006 were (Johnson, 2008):

Table (2) Comparison of Retailers Sales in 2006 (source: Johnson, 2008, p.1) Is Walmart Good for America? 9

People Make the Difference The key behind WMT’s success was not so much the everyday lower prices, but the excellent commitment to forge common cultural ground among the hundreds of associates in the organization. Although systems, strategies and infrastructures were extremely vital, people came above all because they made things happen. Appreciating and treating associates well was a prime objective for Walton. He felt people performed best when they were treated well and satisfied with their jobs (Soderquist, 2005). As part of giving workers dignity, the company embraced an open door policy. The policy was established as means for associates to voice their suggestions and concerns. The leadership team set the tone in the organization, offered the environment for success and embraced that people were important. The company believed in promoting leaders from within. The leadership team inspired their associates to learn, develop, and become talented professionals. Over three- quarters of the men and women managing WMT’s stores began as hourly associates (Soderquist, 2005).

Supply Chain Management The Merchandising Strategy WMT believed that customers were the only reason the company was in business. This belief was its driving force to offer the greatest value. Consequently, offering value in products and services was a preeminent part of the company’s decision making. The Merchandising Strategy had been designed around the customer’s needs. The company aimed at offering merchandise that every family in the country needed and could afford. The company focused on carrying most of the items needed to run a household (Soderquist, 2005). It was extremely important for WMT to offer a wide assortment of products, but also provide quality items and brand names when possible. In an average store, there were more than eighty thousand individual items, and more than one hundred thousand items in a supercenter – 30% more than the competition (Soderquist, 2005). The company had never stopped working on making prices lower without compromising quality. A procurement strategy coupled with a pricing strategy formed the company’s buying strategy, Is Walmart Good for America? 10 consequently enabled the company to achieve dominance in many market categories including dog food, toys, undergarments, fabric, music, and videos (Soderquist, 2005). To ensure quality of merchandise, WMT tested each item during development and sent out each item to an independent testing laboratory to confirm the level of quality. The company also did its best in making the packaging reflect the product on the inside, and designing it as user- friendly as possible (Soderquist, 2005). Earning customers’ trust was the only way to gain their loyalty. Satisfying customers was the company’s primary objective. With this strategy, the competition didn’t realize that WMT was slowly drawing away customers from them. Customers appreciated the steady low price offerings and disliked the classic bait and switch discount retail strategy (Soderquist, 2005).

Technology – the Ultimate Change Agent Effective Supply Chain Management combined with suitable technology was the ultimate formula for success. Although Technology was only a tool, it was a powerful resource that contributed to the company’s sales and profitability. Technology helped in tracking expenses, maintaining and storing data; therefore it aided in performance review and decision making. Technology reduced times requirements in business processes, but also played a role in improving customer service (Soderquist, 2005). WMT had always focused on utilizing technological advances to automate processes, as well as stores’ operations. It was also the responsibility of the operating departments to determine the systems’ priorities by working with the technology department to develop a basic design of the system and calculate the anticipated payback. Associates were also involved by providing system feedback and recommendations for improvement (Soderquist, 2005).

Point-of-sale, Universal Product Code, and Electronic Data Interchange WMT was one of the first retailers to effectively use electronic scanners for point-of-sale (POS) to capture items sold at the cash register. It was also the leader in the development of Universal Product Code (UPC) for all merchandise, which involved assigning a specific code to each individual item. UPC had advanced the way items were handled at the cash register. UPC also improved data collection, replenishment, returns, and defects handling. WMT was the first Is Walmart Good for America? 11 retailer to extensively use Electronic Data Interchange (EDI) for transmission of purchase orders for merchandise directly to manufacturers then receive a confirmation from the factory. EDI significantly reduced time, errors, and costs for the entire Supply Chain network (Soderquist, 2005).

Radio Frequency Identification (RFID) In 2004, WMT announced its new RFID requirement on all suppliers for all products by 2010; the entire supply chain network took notice. When WMT announced its plans to use RFID, the telecommunications and IT worlds were astonished because the technology was put on hold by several industries due to complexity of its implementation. Prior to WMT’s interest in RFID, the technology was used in the following ways: (Fitchard, 2005): - Heavyweight RFID chips had been used in manufacturing to track goods through the assembly line. - RFID chips formed the backbone of automated free-way toll systems and many public transit fare cards. - RFID had been used for automatic payments at gas stations and fast-food restaurants. RFID had long been deployed in completely closed systems in which the tags could only be read by the company. For example, a fare or toll card from an Illinois toll road would not work on a New York turnpike. WMT blew open the gates of RFID used in an open system. However, this kind of transparency created concerns surrounding data security. The fact that the data was open to various parties was an area for concern considering that competitors could access those tags. However, standard protocols security could be established to alleviate the data security concerns (Fitchard, 2005). WMT developed a satellite communications network that extended to every store and distribution center. The network was used to transmit the stores’ merchandise orders directly for processing, and maintain inventories for every item in the store (Soderquist, 2005.) “It makes it possible to inventory an entire store electronically and accurately without having to count the merchandise…..I am convinced that RFID will become a major breakthrough technology in the years ahead. And WMT is out in front” (Soderquist, 2005, p.144.) In RFID environment, the system tracks pallets and boxes handled by numerous hands and processed through several places until being packed onto the shelves. This venture requires an Is Walmart Good for America? 12 enormous coordination and cooperation among several parties such as the manufacturer, forwarder, logistics provider, and the retailer to effectively share data. As described by an AT&T representative, RFID technology is simply a smart label technology replacing the barcode label. RFID contains an embedded radio chip and antenna emitting low-power signal that can be read by a nearby scanner. The RFID chip contains a wealth of information: where it is headed, where it has been, the exact time it has visited each of those locations and even whether a shipment has been divided up in transit (Fitchard, 2005). WMT’s new RFID requirement set off a chain reaction among retailers, as well as RFID solutions vendor providers. The RFID equipment providers were pulled in to work with Cisco Systems. On the networking side, IBM and Accenture threw extensive resources into the sector. As the project integrator, the giant AT&T also joined in as the network carrier. AT&T planned its first 90-day RFID trial at the beginning of 2006 involving a half-dozen customers, ranging from the retail, financial to manufacturing sectors to test a fully integrated open-system. The trial involved testing the RFID solution from procuring the radio tags on the packages and the scanners that tread them to the network middleware and hardware handling the traffic and ultimately the network connectivity and data centers that would store and pass that information down the supply chain (Fitchard, 2005). RFID was seen as a technology with long future and transformative impact on business processes. RFID made communication from manufacturing to any player in the supply chain flawlessly and effectively possible. RFID tags also provided businesses the ability to monitor the location of its high-value products (Field, 2008). WMT targeted RFID to cut costs, and promote "top-line growth" through increased sales. For instance, large suppliers like Kimberly-Clark, Kraft Foods and Philip Morris used RFID to increase the effectiveness of sales promotions. RFID was also a way to find out when there was no inventory on the floor, and to locate products in the storage room. Studies conducted by the University of Arkansas showed that this approach raised sales of retail products by more than 20%. The study also indicated that 78% of "best-in-class" RFID users increased their inventory turns, and 94% increased their employee productivity (Field, 2008). Companies that depend on WMT for a huge percentage of their sales had to tag all of their products, and the ones who failed to locate their tags properly were assessed a service charge starting at $2 per pallet. Although many companies and suppliers considered RFID as large Is Walmart Good for America? 13 investment lacking much of the return on the investment, they were obligated to apply RFID in order to stay in business with WMT (Field, 2008).

Retail Link Data Base WMT’s database system was considered the largest in the world housing an incredible amount of information. With the capability to capture 104 weeks of sales history by week for every item in every store in the world, the data was used for analyzing sales trends, monitoring the selling performance of certain items, and managing replenishments. The system automatically replenished merchandise in each store, estimated demand on discretionary items for each store, checked inventory, then automatically created an order and transmitted it to the responsible DC. As soon as the order was received by the DC, the load was prepared and loaded on the truck to be shipped to the store (Soderquist, 2005). The adoption of data base “Retail Link” in 1991 revolutionized the supply chain network of WMT. Retail Link gave suppliers access to WMT’s database in Bentonville from their own PC’s. With Retail Link, suppliers gained the ability to monitor sales on their items (Soderquist, 2005.) Retail Link linked WMT’s operations with suppliers’ in order to share real-time sales data. As Figure (2) shows, Retail Link linked suppliers with WMT’s management office, Distribution Centers (DC’s,) and stores. Suppliers were expected to monitor sales and replenish stock levels automatically (Johnson, 2008). WMT was one of the first retailers to adopt collaborative planning, forecasting and replenishment (CPRF.) CPRF is an integrated approach to planning and forecasting by sharing critical supply chain information, such data on promotions, inventory levels and daily sales. As far back as the late 1980’s, the company had been following a vendor-managed inventory (VMI) program, which required suppliers to manage inventory levels at WMT’s DC’s. For many grocery products, suppliers owned the inventory until they were sold, consequently suppliers were responsible to manage the flow of goods from the factory to the stores, resolve in transit issues, and arrange the return of defective products to last-minute issues, such as managing sudden spikes in demand for popular items. WMT’s buyers met periodically with suppliers to share performance related to out-of-stocks rate and inventory replenishment. Suppliers were also given targets for out-of stock rates and inventory levels (Johnson, 2008). Is Walmart Good for America? 14

Figure (2) WMT Retail Link Data Base (Source: Johnson, 2008, p.13)

Reinventing the Supply Chain Managing Supply chain and Logistics with advanced technological systems is a proven formula to blow past the competition in areas of cost, merchandise management and customer satisfaction. Soderquist called it “a necessary evil.” A required Logistics is a term that endless process that didn’t add to the bottom line. WMT had represents the movement of goods from manufacturers to followed cutting-edge and revolutionary techniques and the retail counter (Soderquist, processes to improve the in-house distribution system. The 2005). Is Walmart Good for America? 15 overall process was gradual and composed of phases (Soderquist, 2005): Phase 1: Built and operated warehouses to receive merchandise in order to that merchandise to stores. Phase 2: Stored some back-up merchandise for stores to order directly from warehouses, instead of ordering from suppliers. Phase 3: Implemented mechanization and automation, eventually converting WMT’s warehouses into full-line DC’s complete with inventory replenishment and control systems. Phase 4: Became a model of a vertically integrated supply chain, competed with automatic replenishment for stores inventories, and co-managed inventories with many suppliers. WMT started opening small warehouses of their own to serve a cluster of stores, then this concept spread over to the entire supply chain industry. The development of a warehouse system to receive, store, and ship merchandise to stores turned into necessity, because the stores were in small rural markets. Store managers could only order limited quantities and big trucking companies didn’t have many loads to send directly to stores, so they sent the merchandise to consolidators who then held the merchandise in a warehouse until they had a large enough load to make it economical to make a delivery to the small towns and businesses in a given geographical area. This system was costly, caused major time delays, and was ineffective to replenish merchandise at stores quickly (Soderquist, 2005). WMT built additional warehouses as new stores were being opened. More and more items were being added for delivery through the distribution centers, until over 80% of the merchandise that was sold in the stores was shipped directly from the warehouses. As a result, dollars tied up in inventory were reduced and stocking stores became more efficient. As the company’s ability to better control the flow of goods through its supply chain grew, customer service significantly improved. Flexibility was integrated into the system and each store received merchandise customized to customers’ needs in that area (Soderquist, 2005). The company also hired its own truck drivers who were part of the team. The trucking associates were accustomed to working closely with the distribution associates to make sure that stores were being served effectively. Effective communication through on board computers with truckers was critical for dispatching them and providing them instructions. To achieve greater efficiency in distribution, truckers picked up merchandise from suppliers to several DC’s, consequently the company had to develop the “cross docking” concept. The concept was first Is Walmart Good for America? 16 tested when WMT built a long, narrow, extended arm at one new distribution centers and put multiple doors on one side. As the merchandise was unloaded from the inbound truck, a selection of merchandise was moved to another truck on the opposite outbound side for another DC. By having the merchandise move directly between trucks without any additional handling, the company saved costs on shipping, handling, and many other subtle areas of distribution system. As a result, Cross-docking became the pattern for all new DC’s – Cross Docking discussed later (Soderquist, 2005).

Creating Supplier Relationships WMT had long been committed to reinventing its distribution system, but there was still an obvious disconnect between the company and suppliers in the system. Operationally, WMT was doing its thing and suppliers were doing theirs, and the relationship between them was cordial, but not collaborative (Soderquist, 2005). The traditional seller-buyer relationship involved the salesperson presenting sale items to the buyer, then they agreed on a price. The relationship was formal and each representative was unwilling to share any internal company information about strategies and critical information necessary to improve competitive advantage. WMT had come to a conclusion that this private restricted approach had to change, and that if both sides could be more open, communicate more effectively, and develop more of a trust relationship, there would be a significant positive impact on both businesses. The first two suppliers that integrated their supply chain relationship with WMT were General Electric (GE) and Procter and Gamble (P&G). In order to revamp the relationship, WMT worked closely with both partners to simplify processes and enhance relationships. The entire buying process was revamped, including the way merchandise was ordered. In the former buying process, the buyer only interfaced with one salesperson of the supplier. All communication and issues flowed between those two people, but the problem was that each of the buyer and the seller knew the merchandising side of the business, but was not knowledgeable enough about other areas of the business including technology, logistics, accounting and other functions. As a result, the lifecycle of certain issues was long and some issues were floating around for longer than desired (Soderquist, 2005). As far as the systems, suppliers’ computers were operating in one way; WMT’s computers were operating in a completely different way. The suppliers’ account receivables department was Is Walmart Good for America? 17 operating under certain rules; WMT’s accounts-payable department was operating under a different set of rules. While WMT orders called for suppliers to ship fifteen to twenty loads of merchandise to one distribution center once every two weeks, WMT could only unload one of the supplier’s trucks per day. WMT sent paper written orders to suppliers, then suppliers still had to reenter identical information on their forms and input into their computers. This redundancy was not only time consuming, but also subject to man human mistakes (Soderquist, 2005). WMT decided to make a change and stop funneling all communication through one person and find appropriate ways to get each issue to the right relevant specialist to solve problems. Cross- functional teams were established with suppliers. The cross-functional teams included specialized members from different functions that work together to simplify and streamline communications. The ordering and invoicing processes were streamlined by transmitting orders and invoices electronically. Instead of shipping large truck loads per week, the merchandise flow was spread out to levels the distribution centers could handle. As countless errors were eliminated, frustration levels were reduced on both sides, inventory levels were reduced and “in stock” rates in stores were improved. By achieving all of these improvements, millions of dollars in cost were driven out of the system by giving suppliers direct access to system Retail Link (Soderquist, 2005). WMT efforts to collaborate with suppliers were endless. Suppliers understood their responsibilities to implement what were needed in order to increase product flow efficiency, consequently increase profitability. P&G worked with WMT to implement vendor-managed inventory, category management, and other intercompany innovations. P&G also fielded a dedicated account team in WMT HQ in Bentonville, AR. Team members representing P&G performed all functions: sales/marketing, distribution/supply chain management, IT, and finance. This transformed customer-supplier relationship was also used to establish relationships with other customers like WMT. Although this relationship required a lot of resources and commitment, the consequences were more than favorable for the supply chain network (Byrnes, 2003). Sharing proprietary knowledge and processes with its supplier base to improve quality and eliminate waste out of the supply chain was critical to empower the collaborative supply chain system. Consequently, suppliers and customers achieved super effective cost management with a constant focus on continuous improvement (Casestudyinc, 2008). Is Walmart Good for America? 18

WMT was aware that it had been a demanding customer for suppliers, but the company conducted business in ethical and fair manner. “It stands to reason that WMT must have successful and healthy suppliers in order to stay successful itself……A fundamental element of a trust relationship to be underscored is that the relationship must be beneficial for all parties involved. No one wins until everyone wins. The supplier has to win, the retailer has to win, and the customer has to win” (Soderquist, 2005, p.173).

Purchasing Strategy WMT’s senior management team consistently cut out the middleman, including wholesalers and distributors. WMT also established international purchasing offices to handle global sourcing. The international purchasing offices worked directly with local factories to source WMT’s private label merchandise. The private label concept was first developed in the 1980s, and it appealed to customers due to their significant reduced pricing. Buyers met in Bentonville quarterly to review new merchandise and review merchandise performance. Buyers also toured stores weekly to help associates stock and sell merchandise (Johnson, 2008). WMT exerted enormous power over its suppliers. The company dictated that its suppliers accept payment entirely on its terms, and required them to share supply information all the way back to the purchasing of raw materials. WMT also had a say in where suppliers should manufacture their products, how to design those products, and what materials and ingredients to use in those products. In negotiations, the company insisted on a single invoice price and did not pay for cooperative advertising, discounting or distribution. WMT maintained high expectations on sales data analysis, category management responsibilities and external research, therefore it was common for suppliers to have several dozen employees working full-time to support the WMT business (Johnson, 2008).

Negotiation Strategy WMT’s commitment to “Low Prices” approach came at great cost for the entire supply chain network. The main strategy involved constantly pushing its grocery suppliers harder to offer consistently lower prices. WMT had so much economic power that suppliers had to do a lot more than reduce prices. Suppliers had to find ways to make their products more desirable through new product innovation and marketing initiatives to drive sales. Charles Holley, WMT Chief Is Walmart Good for America? 19

Financial Officer said: "We want to work with vendors on that to see if we can take a price lower and leave it there permanently……. The price image for a customer is very important…….I think we reached the wall in terms of raising price. Consumers can't take any more” (Geller, Wohl, 2012). WMT’s commitment to offer the lowest prices to customers was part of the company’s mission. To achieve this commitment, WMT constantly pushed down its purchasing costs. It did that by spending a large majority of the time meeting with vendors to understand their cost structure. The company was such a price negotiator that it made a price deal based on the fact that the products purchased were not available at any other place with lower price. As one of the former employees put it, “we would tell vendors, don’t leave in any room for a kickback because we don’t do it here. And we don’t want your advertising program or delivery program. Our truck will pick it up at your warehouse. Now what is your best price?” (Casestudyinc, 2008, p.6.)

Logistics Operations Distribution WMT found that it was necessary to establish distribution centers for each center to serve a cluster of the closest stores, and the competition copied this “hub-and-spoke” design after proven successful. The company added thousands of U.S. stores across the nation in low-rent suburban areas and close to major highways. By the time the rest of the retail industry started to take notice of WMT in the 1980s, it had built up the most efficient logistics network of any retailer. WMT’s logistics and information systems division included 75,000 employees. The private truck fleet employee base consisted of 7,800 drivers, who delivered the majority of merchandise. WMT 114 U.S. distribution centers, located throughout the United States, were a mix of general merchandise, food and soft goods (clothing) distribution centers, processing over five billion cases a year through its entire network (Johnson, 2008). In-house trucking picked much of the merchandise from the suppliers’ warehouses then shipped it to distribution centers. In order to skip over processing and storage, goods were directly transferred from inbound to outbound trailers without extra storage. Other merchandise was purchased directly from factories in offshore locations, such as China or India, then processed and sorted at coastal distribution centers before being shipped to WMT stores (Johnson, 2008). Is Walmart Good for America? 20

Some suppliers delivered goods such as automotive and drug products directly to stores, but eventually 85% of products passed through WMT’s distribution centers. Goods distributed within the U.S arrived on pallets, and imported goods arrived in reusable boxes. Boxed and palletized products were handled in the same manner. WMT used advanced barcode technology and hand-held computer systems to ensure an unfailing flow of products to support the supply function. With real time information about inventory levels of all the products in the center, an employee made two scans- one to identify the pallet, and the other to identify the location from the stock to be picked up. Different bar codes were used to label different products, shelves and bins in the center. The handheld guided an employee to the location of a particular product from a particular bin or shelf in the center. The computer did the verification of the bin for the employee to pick up. The employee entered the quantity of the product required from the center into the hand-held computer which transmitted the information to the main server. The packaging department had accurate information about the products to be packed. Center supervisors could easily monitor their employees closely and guide them even on the move. This enabled efficient distribution center management operations and served customer needs quickly (Casestudyinc, 2008). WMT’s trucks that made deliveries to stores backhauled unwanted or unsold merchandise worth $1 billion per year on the way back. It was easy for WMT to implement new standards delivery procedures, because WMT’s trucking employees were non-unionized. The company preferred implementing standardized operating standards to avoid miscommunication between traffic coordinators, truckers and store level employees (Johnson, 2008).

Cross Docking At WMT, Cross docking reduced material handling and reduced the need to store the products in the warehouse. In most cases the products sent from the manufacturing area to the loading dock would have already been Cross Docking is the process of moving allocated for outbound deliveries this was only product from a manufacturing plant and possible if the supplier ensured delivery as delivering it directly to the store with little or no material handling in per time schedule (Casestudyinc, 2008). between (Casestudyinc, 2008).

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Retail Strategy WMT had long been committed to its Everyday Low Prices” (EDLP) strategy. Other retailers were famous for using the “high-low” discounting environment, which involved rotating discounts from EDLP means that products are offered at one product to another. The EDLP environment lower prices, and stay at steady lower offered more products with consistent low pricing prices (Johnson, 2008). reducing the “bullwhip effect.” As compared to the competition, WMT did not need to advertise as frequently, yet it was able to sell larger volume and create savings for customers. In order to promote and increase the sale on certain products, WMT offered additional discounts on certain products for about 90 days in what it called “Price Rollbacks.” Price Rollbacks were offered and paid for by suppliers. Customers appreciated the steady low prices which were about 8-27% lower than the competition. In an effort to keep costs low, stores were simply constructed and expenses were kept at minimum. For example, light and temperature settings for all stores were set up to be controlled centrally from WMT’s HQ in Bentonville. The company’s ability to quickly restock shelves was due to close proximity of distribution centers, and access to real-time information of store’s in- stock levels. To ensure stores maintained shelves stocked of all products, associates had the authority to manually input orders (Johnson, 2008). The merchandising department was responsible for creating a template for shelves, and assigning shelves to a certain set of SKU’s based on certain standards and historical sales data. Associates were also allowed to change the way shelves were stocked to better fit the store’s needs (Johnson, 2008). The company continued to streamline its regional sales structure. By adding stores that were no longer going to be “cookie-cutters,” WMT’s new strategy involved providing products relevant to the individual markets. Stores started selling items such as Egyptian cotton towels, 400- thread-count sheets, and new lines of apparel and additional brands of electronics (Cassidv, 2006). While WMT tailored each store’s product mix based on the community preferences, the competition made standard ordering on regional or district level. The company introduced a concept called Category Captains in the late 1980’s. Category Captains were a team of key Is Walmart Good for America? 22 suppliers that worked together to come up with the best product mix on shelves to promote sales. The Category Captain Process was conducted in the upmost fairness; otherwise they would take action by replacing suppliers on the team (Johnson, 2008).

Inventory Management In an effort to reduce inventory levels and cut logistics and transportation, in January 2006 the giant retailer implemented a strategy to cut as much as $6 billion in inventory within 100 days. For suppliers and transporters this strategy created an undesirable vacuum for their sales. Such shift in strategy coming from a dominant retailer sent tremors across the supply chain. The correction was expected to boost trucking capacity and slow rising rates, although others argued that demand would continue to outrun capacity. As a result, the correction siphoned $300 million to $400 million in freight incentive out of the market. As a result, the American Trucking Associations' monthly tonnage index declined 2.5% in February 2006 to its lowest level since September 2005. WMT normally liked to have inventory grow at about half the rate of sales, but the company had not done such a great job of that since 2002. Consequently, the company needed to slash inventory levels to get back on track (Cassidv, 2006). The inventory correction was part of a bigger project at WMT. The company remodeled its supply chain with new technology, new processes and new facilities to better track products, reorganize its distribution network and overhaul suppliers’ logistics and transportation techniques (Cassidv, 2006). Target Stores, contributed the improvements the company noticed in 2005 to slashing cash flow from inventory from $853 million to $454 million over the year according to its year-end Securities and Exchange Commission filing. “Inventory reductions and softer sales translate to lower-than-projected earnings at carriers and shippers. As a result, YRC Worldwide lowered first quarter earnings estimates, as did refrigerated carrier Marten Transport. Swift Transportation. J.B. Hunt Transport Services and Knight Transportation saw stock prices drop J.B. Hunt and Swift each received about 15 percent of their 2005 revenue from WMT” (Cassidv, 2006, p.2) WMT’s inventory correction initiative included the implementation of the Remix Program. In the Remix Program inbound goods were routed through consolidators to avoid stock-outs and replenish stores faster (Cassidv, 2006). Is Walmart Good for America? 23

At the Council of Supply Chain Management Professionals (CSCMP) Annual Conference in Chicago, Gary Maxwell, WMT’s Senior Vice President of International Supply Chain cited keys to developing best global supply chains. Maxwell stressed the importance of understanding customer needs as key to designing a fluid global operation, building diversity within the supply chain networks by evaluating supply chains based on the needs of a particular geographic market (Berman, 2009). Many supply chain network engineers built assumptions on distance and volume, and inventory was typically viewed as a fixed variable. For an efficient supply chain with less inventory, inventory should be variable not fixed. The inventory management function also should not be looked at as a separate from other logistics functions. In order to run a truly efficient supply chain, retailers should start with inventory and look at ways to carry less inventory and turn it over faster (Berman, 2009).

Expansion Strategy WMT located its stores in places where it expected to be profitable; taking into consideration predicted demand, cost factors, competitive environment and growth outlook. Some of the demographic factors determined its entry include population size, population density, population age, as well as income distributions. Other factors the company considered include urban counties located near other urban counties, or counties with a given industrial composition. The pattern of expansion repeated itself in an accelerated mode for supercenters as shown in Figure (3); supercenter locations in five-year intervals from 1990 to 2005. One downside of opening stores close to each other was the potential for cannibalizing the sales of other stores in the chain. Opening stores close to each other allowed the company to exploit economies of density in distribution, training, and advertising. The expansion of the stores was also dependent on the nearing all of the stores to at least one DC. Locating a store immediately next to a distribution center increased its annual operating profit by $220,000 (Basker, 2007).

Is Walmart Good for America? 24

Figure (3) Walmart Expansion Map (Source: Basker, 2007, P.5)

Green Sustainability Quality of products being manufactured has been a critical issue for many retailers and wholesalers for many years. The ever-lengthening supply chains of today’s global economy present growing risks and have cost retailers millions of dollars. In this evolving new century, product social and environmental impact is also on the production horizon pushing beyond old school quality requirements. WMT had been working internally and externally to pave the way into greener supply chain. There were several undergoing investments in renewable energy. The first project aimed at doubling the company’s solar program in California as the first of four annual wind energy purchases for stores in Texas. The company also worked with the Carbon Disclosure Project to measure energy use and emissions throughout the company’s supply chain including suppliers. WMT also committed itself to reduce packaging in its supply chain by 5% by 2013, which was estimated to save 667,000 metric tons of CO2 from entering the atmosphere (Quinn, 2009).

Green initiatives Is Walmart Good for America? 25

Companies had come to realize that going "green" would not only help the earth, but would also add to their bottom line profits. WMT’s desires to go green began in 2005. In order to continuously reduce logistics costs and environmental impact of freight transport, WMT took measures such as, order optimization, energy efficiency, consolidation network of center-point facilities and improving packaging design. In 2005, the company decided to revamp its supply chain to “go green,” and joined the United States Environmental Protection Agency’s (EPA) Smart Way Partnership Program, which aimed at encouraging and recognizing energy conservation in freight transportation (Cambridge Systematics, 2013). Tyler Elm, Senior Director of Corporate Strategy and Business Sustainability, explained that the company realized early that it had to look at the entire supply chain network and not just WMT’s internal operations. If WMT had only looked at their internal operations, it would be missing 90% of green opportunities (Packaging Digest, 2007). WMT identified 14 key categories of products, processes, and networks that had the greatest environmental impact and bundled them into three broad categories: renewable energy, zero waste, and sustainable products. It strategically decided not to hire associates in sustainability on a full-time basis, but instead to embed sustainability in their daily work. Network partners assisted in motivating suppliers to compete in the area of improving the environmental sustainability of products and processes (Packaging Digest, 2007). Lee Scott, WMT CEO, set challenging sustainability goals. WMT aimed at operating under 100% renewable energy, produce zero waste and sell environmentally friendly products by the end of this decade or early in the next. In China, Scott called for outside social and environmental on WMT’s contract manufacturers’ practices, and required 20% improvement in energy efficiency of its top 200 suppliers by 2012. Scott also pledged to cut water use in China stores by half over the next two years. The sustainability efforts applied on logistics service providers as well, which involved stricter scrutiny of fuel use, carbon emissions and greenhouse gasses (Hoffman, 2008).

Green Packaging The packaging network also implemented web-based Packaging Sustainability Scorecard, which evaluated packaging against nine sustainability metrics, including cube utilization, recycled content, carbon dioxide per ton of production and recovery value. The scorecard was developed Is Walmart Good for America? 26 with input from about 200 members of the company's packaging network, including WMT, U.S. Environmental Protection Agency, WMT's suppliers, packaging suppliers and other stakeholders. In 2007, WMT requested for its supplier to start using the scorecard to figure out how the new green initiatives and packaging techniques rated. WMT formally launched the system in 2008 to measure the ability of its supply chain. And set a goal to reduce the use of packaging by 5% by the year 2013, which was expected to generate $3.4 billion in savings (Packaging Digest, 2007). At the seventh annual Sustainability Expo held in early May 2012 in Rogers, AR, WMT’s representatives and their suppliers reviewed the progress made by the sustainability initiatives. 2,000 participants and 190 packaging exhibitors attended the expo. This review gave packaging suppliers an opportunity to display their latest technology that could contribute to sustainability. Product buyers interacted with consumer packaged goods (CPG) companies on packaging issues (Kalkowski, 2012). WMT had long been involved in improving packaging sustainability and supporting ideas such as the Scorecard. WMT gave buyers sustainability goals for the product lines they represented. Buyers and suppliers were expected to work together to identify, prioritize and execute projects that would drive additional efficiency improvements and cost savings (Kalkowski, 2012). WMT took a global view of sustainability efforts. Exhibitors at the packaging expo included global companies with manufacturing locations around the world, such as China, Guatemala and Mexico. The following success stories were highlighted during the Expo (Kalkowski, 2012): - One WMT apparel buyer and his team found a way to change the die line and folding to make more efficient use of corrugate sheets for the boxes that hold the 35 million pairs of shoes the company sold each year. Those changes resulted in $1.1 million savings in packaging costs; a reduction of 8.1 million pounds in solid wastes and 157 truckloads off the highways (Kalkowski, 2012, p.1). - Smithfield Foods, a major supplier of case ready pork sold for WMT, improved its packaging by separating stacked trays with an absorbent slip sheet in a mother bag. This allowed Smithfield to reduce the size of secondary case leaving space for more cases to be shipped in each truckload. This load optimization was said to save $473,000 in costs and reduce trucking distance by 693,000 miles (Kalkowski, 2012, p.1).

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Environmentally Friendly Products WMT committed itself to source and retail a set of environmentally friendly products. One of WMT’s strategic objectives was to work diligently with suppliers by building relationships and providing them incentives when they produced environmentally compliant products. If suppliers were unable to provide those products, then WMT would switch suppliers. Seong Ohm, Vice President and Divisional Merchandising Manager at WMT, expressed concerns over suppliers' sensitivity about intellectual property and unwillingness to share information with other partners and suppliers. It created a barrier to improving environmental performance by the entire platform of suppliers. Yet, there were a number of possible obstacles that WMT anticipated to face as it scaled up the network including: 1) increased costs, 2) a suboptimal product assortment and 3) criticism of plant/labor conditions (Packaging Digest, 2007).

Reverse Logistics In an effort to eliminate product returns by 2012, the company planned to take several measures to reduce product defects to zero defects. Although this goal was a stretch, this might have been part of WMT’s effort to discreetly encourage its supplier to consolidate operations and reduce costs associated with transportation and logistics for further cost savings (Hoffman, 2008). A higher product standards at WMT driven by eliminating returns of defective products was seen as a new front to reducing waste. Returns had been a hidden cost for many years, but was being looked at as WMT set the bar high for more than 1,000 suppliers. WMT planned to use onsite audits, as well as enforcement of environmental and social standards. All returns were considered waste and created added cost in the process of reverse logistics. The return process involved collecting, sorting, transporting and tracking defective products back to their manufacturing source through a third-party reverse logistics company. Although more than 70% percent of returned products were in working condition, they were sent back because they were dinged, unwanted, or the wrong size or color (Hoffman, 2008). The new approach WMT was taking on returns would drive higher standards for product safety and quality, fewer returns, less cost on the manufacturing and retail bookends. The potential savings from leveraging sustainable manufacturing to the goal of eliminating of returns was expected to be huge. According to a research conducted by AMR Research, 20% of all products sold were returned in all industries, while the average return rate for online sales was 36%. WMT Is Walmart Good for America? 28 alone processed about $6 billion a year in returned merchandise. The company also looked at their transportation and logistics providers to develop a damage control agenda aimed at controlling defective returns. Manufacturers and trucking companies also evaluated packaging specifications to better protect the product with case dividers and packaging materials to cushion the product inside the box, or by using the appropriate package strength and pallet configuration (Hoffman, 2008).

Sustainable Product Index WMT’s new sustainability efforts impacted suppliers directly. In July 2009, the superstore magnate announced plans for a worldwide Sustainable Product Index, consequently thousands of customers, suppliers and retailers listened in. The new Sustainable Product Index notion was an innovative way to measure and communicate the environmental impact in the consumption of certain products from the manufacture to the entire market and consumers. The implementation of the index involved a three-step approach (Quinn, 2009): 1- Suppliers were asked to complete a self-assessment survey in energy, climate, natural resources, material efficiency, people and the community. 2- WMT worked with a group of universities in conjunction with suppliers, retailers, governments and non-government organizations to develop a global database of information about the lifecycle of products from raw materials to disposal. 3- A rating system was created based on the index in order to make the sustainability index easier for customers to understand (Quinn, 2009). At Walmart’s annual meeting for investors in 2012, Walmart announced plans to add $150 million in benefits to its bottom line from sustainability initiatives, such as solar and wind energy projects, fuel cell installations, and zero waste program in fiscal year 2013, on top of the $231 million the company saved already from waste reduction and recycling. Sustainability achievements in 2012 included (Environmental Leader, 2012): - According to the company’s 2012 Global Responsibility Report, WMT kept 80.9% of waste from its US operations out of landfills in 2011 and achieved cost savings through a combination of increased recycling revenue and decreased expenses. - In China and Brazil, WMT stores diverted 52% of operational waste from landfills in 2011, and its UK chain ASDA started sending zero food waste to landfills. Is Walmart Good for America? 29

- The company also cut its plastic shopping bag waste about 3.1 billion bags in 2011; a 35% percent reduction from a 2007 baseline beating its goal of a 33% cut by 2013. - According to rankings by the U.S Environmental Protection Agency (EPA), Walmart became the second-largest onsite power generator in the US for its Texas and California stores alone. - The company also announced its largest solar installation to date at Buckeye distribution center near Phoenix, AZ. According to a report published in September 2012 by the Solar Energy Industries Association and the Vote Solar Initiative, WMT had 65,000 kW of installed solar capacity. - The company had more than 180 renewable energy projects in operation. These included a 90 MW wind farm in West Texas to provide 15% of power for more than 300 WMT and Sam’s Club stores, 1 MW wind turbine pilot project located at its DC in Red Bluff, CA, and a 26 fuel cell sites in California supply energy to local WMT and Sam’s Clubs stores.

Global Responsibility Report WMT publishes a yearly Global Responsibility Report that incorporates the company’s social and environmental policy, and responsibility efforts. The report highlights performance and reviews progress on improvement projects (Walmart, 2013) - According to 2013 Global Sustainability Report, the product Sustainability Index has been put in place covering 400 product categories. - To support women-owned businesses, WMT is committed increase sourcing from women- owned businesses in amount of $20 billion of products and services for the U.S. alone. In the Sustainability Consortium (TSC) in China on October 25, 2012, WMT announced a series of new sustainability supply chain commitments (Walmart, 2013): - By the end of 2017, buy 70% of goods sold in the U.S from suppliers that use the sustainability index. - Beginning in 2013, use the Index to on WMT’s private-brand products. - Beginning in 2013, hire on board key Global Sourcing leaders assigned specific sustainability objectives tied to their annual evaluations. TSC engages Chinese researchers and local experts in developing measurements and reporting systems. The consortium provides training and builds capacity for using TSC’s tools. The Is Walmart Good for America? 30 consortium engages suppliers in a network to learn and share best practices. The Walmart foundation donated a $2 million grant to support the launch of TSC in China. (Walmart, 2013). In January 2013, WMT committed itself to support American manufacturing by sourcing an additional $50 billion in products in the U.S. over the next 10 years to help create more jobs and revitalize the U.S. economy (Walmart, 2013).

WMT’s new sustainability efforts are transforming the company’s image in the eyes of politicians, economists and the general public. The green initiatives improve the effects on the environment, and result in further savings by “cleaning up” the supply chain system. Sustainability also plays a major role in its merchants' performance reviews, which can be used to determine pay raises and potential for future promotions. These merchants are high-level managers responsible for multibillion-dollar buying decisions. They're the people who determine which products appear on the shelves of the world's largest retailer (Winston, 2012). Suppliers repeatedly voiced one critical and legitimate complaint about WMT's merchants’ ability in taking sustainability into account when they made buying decisions. This flaw in WMT’s green supply chain program threatened to undermine the foundations of a highly-touted and important initiative. According to Walmart's Sustainability director Jeff Rice, the suppliers and other stakeholders told the company: "It's great to ask your suppliers’ questions, but it only matters if you do something with the information" (Winston, 2012, p.2.) In their view, the company continued to choose the products it sold primarily on price (Winston, 2012). The performance evaluations for WMT’s buyers only included a handful of targets, and all were discussed thoroughly at annual reviews. Sustainability performance didn’t determine the entire evaluation, but it was sufficient enough to impact the buyer buying decisions (Winston, 2012).

Controversial Impact on America Job Creation and Low-Wage Approach Tucker Carlson, presenter of The ED Show, argued in his show about whether WMT would be good or bad for America. He personally did not like WMT as a place to shop. WMT could be pushing smaller and more picturesque stores out of business. Based on the video from the show, he interviewed Robert Greenwald, a liberal filmmaker, who studied WMT for a year and released a documentary called "The High Cost of Low Price" criticizing the company (Carlson, 2005). Is Walmart Good for America? 31

Carlson appeared to be against what the video implied that WMT seemed to be going on a rampage in the U.S economy. More than 100 million Americans shopped there every week, and saved a lot of money. He continued to argue that WMT employed 1.3 million people in this country. Despite the low-wage approach, if these workers had other work option, they would pursue the higher paying jobs (Carlson, 2005). The full documentary by Robert Greenwald about WMT presented actual cases about what some WMT’s workers were experiencing. Employing 1.3 million workers, the company had a huge impact on how they treated their employees and what they offered them in wages and benefits. The documentary also presented the small businesses experiences when the company entered their small towns. Due to some towns’ beliefs in the effects of WMT, the towns rejected its entrance to their communities. The movie attacked various other aspects of the company practices, including the company’s behavior and response to crimes that involved their employees within the company’s premises (Greenwald, 2005). The documentary started by telling a story about the Hunter Family who had owned a smaller H and H Hardware store in small town Middlefield, OH for more than 40 years. The Hunter family built their dreams and family history in this store, but they were forced to go out of business when WMT entered their town. The owner, Don Hunter, believed that family-owned business stores offered customers more informative and personable sale experience, yet he found it extremely challenging to compete with mass merchandisers. The Hunter family suspected that the value of their business building also dropped by reducing the value of business real estate due to WMT’s entrance (Greenwald, 2005). Many small business owners in the company doubted that WMT was giving much to the community. The company had been sourcing much of its product out of China, investing U.S dollars in China, and nourishing the Chinese economy instead of the U.S economic system. According to an optical shop in the area, WMT presence was not increasing competitive advantage, instead it had been crushing the competition (Greenwald, 2005). The documentary also hosted a few WMT employees, who expressed their dedication to the company, but were overwhelmed by the job pressure due to staffing shortages. Jon Lehman, store manager, explained that the company did not provide enough payroll dollars to hire enough associates, despite the high store revenues. One employee earned $7 an hour, and the limited income she received went right back into WMT when she shopped for food for her family and Is Walmart Good for America? 32 kids. Some full-time employees were offered health insurance coverage, but they could not afford it and reached out for government health insurance options (Greenwald, 2005). In a meeting organized by the United Food & Commercial Workers International Union, WMT employees voiced their concerns to Wall Street analysts over WMT’s poor labor practices. Two employees, who had been with the chain for more than 20 years, outlined problems they observed including unsafe conditions, low wages and low levels of staffing. These conditions lead to poor customer service, which could impact sales and profits (Geller, Wohl, 2012) A salaried manager claimed that her store threw out 2,000 pounds of leftover Halloween candy after it had been too short-staffed to stock it on time. Management even tried to sell the expired candy in discount bins in the electronics department, and threw it out after it did not sell. Another employee said that WMT cut employees' hours and labor costs to a point where it was actually harming workers, operations, and customers. The concern became that the country’s largest private employers like WMT seek to reap significant profits through the depression of labor costs. The social cost of this low-wage strategy costs taxpayers about $5,815 per employee. WMT Stores was ranked the first on the list with 3,216 of its employees enrolled in Wisconsin’s Medicaid program. The workers who were on Medicaid received reduced-price school meals and housing assistance. The 300 employees in the single WMT in Wisconsin relied on public assistance programs that cost $904,542 a year; about $3000 per employee (Berfield, 2013). WMT’s low-wage approach hurts the economy. The low-wage approach forces taxpayers to subsidize large employers, effectively socializing their labor costs. This is terrible for America’s economic system. The fundamental law of capitalism is based on the fact that if workers have no money, then businesses have no customers. The extreme widening in wealth gap presents a moral challenge, as well as an economic one. “In a capitalist system, rising inequality creates a death spiral of falling demand that ultimately takes everyone down” (Hanauer, 2013, p.1.) “Low- wage jobs are fast replacing middle-class ones in the U.S. economy. 60% of the jobs lost in the last recession were middle-income, while 59% of the new positions during the past two years of recovery were in low-wage industries that continue to expand such as retail, food services, cleaning and health-care support. By 2020, 48% of jobs will be in those service sectors” (Hanauer, 2013, p.1.) Formed in June 2011, OUR Walmart; a union supported group composed of former and current WMT employees, aimed at promoting respect and protecting employees’ rights. In June 2011, Is Walmart Good for America? 33 nearly a 100 WMT Associates representing thousands of OUR Walmart members from across the United States came to the WMT Home Office in Bentonville, AK, and presented a Declaration of Respect to Walmart executive management. The Declaration called on Walmart to publicly commit to listen and have respect to associates, recognize freedom of association and freedom of speech, fix the open door policy, pay a minimum of $13/hour and make full-time jobs available for associates, create dependable and predictable work schedules, provide affordable healthcare, ensure equal enforcement of policy and no discrimination, and give every associate equal opportunity to succeed and advance in his or her career (OUR Walmart, 2010). OUR Walmart members planned a protest on the company’s annual shareholder meeting in Bentonville, AK on June 7, 2013. The group was standing up for all of the company’s employees and wanted the company to set a high standard. Members of the Organization United for Respect Union held protests at WMT stores around the country. The group was asking for a greater number of full-time jobs, with predictable schedules and wages that could provide their families a decent life. Among the group’s requests was full-time work with a minimum yearly salary of $25,000 (Berfield, 2013). Despite all of the controversies surrounding WMT hiring strategies, WMT Stores’ new hiring strategy starting 2013 involves bringing in temporary workers in most U.S. stores. WMT claims that its new hiring policy is to ensure the company is staffed appropriately. The company spokesman claims that this is not a cost cutting strategy since temporary workers are paid the same starting pay as other workers. The flexibility of temporary workers enables the company to have adequate staff on busy weeknights and weekends without having to hire additional full-time staff. (Skariachan, Wohl, 2013).

Ethical Practices WMT’s ethical dilemmas and possibly poor judgment when dealing with its employees had been in question by the public and many authorities. In November 2006, Eduardo Castro-Wright, former president of WMT, fired marketing head Julie Roehm in Chicago at the headquarters. Castro-Wright accused her of accepting diner and a lift in a car from members of the agency that take over $1 billion-per-year account. Castro-Wright himself was involved in the company’s Mexico corruption scandal (Salmon, 2012). Is Walmart Good for America? 34

The company’s ethical code was blamed for being too strict leaving nearly nothing to its employees’ discretion, because it didn’t trust them to do the right thing. The company simply codified everything in a set of rules, and then told them to follow the rules. ”And you can see how that might have resulted in a kind of Calvinist scale-blindness, where accepting a soda when going to meet a vendor is exactly as bad as greasing Mexican wheels to the tune of 24 million dollars” (Salmon, 2012, p.1). In September 2005, a bribery case unfolded involving WMT de Mexico. WMT had orchestrated a campaign of bribery to win market dominance. Confronted with evidence of widespread corruption in Mexico, former company executives had admitted that in a rush to build stores, the company had paid bribes to obtain permits in virtually every corner of the country (Barstow, 2012). Based on an official investigation, a paper trail of hundreds of suspect payments totaling more than $24 million was found. They also found documents showing that WMT de Mexico’s top executives not only knew about the payments, but had taken steps to conceal them from WMT’s headquarters in Bentonville, AK. According to WMT’s lead investigator, the Mexican and USA laws had been violated (Barstow, 2012). Lee Scott, former WMT CEO, apparently did not respond to initial reports during the 2005-2006 period of illegal bribery in Mexico. The company faced a wide variety of significant questions about civil legal liability, damages and penalties. There appeared to be a flawed culture that not only failed to prevent illegality but positively promoted it (Heineman, Jr., 2012).

In Defense of the Controversy According to a research conducted by Global Insight Research Company, WMT had driven an overall productivity increase in the U.S economy. “WMT's effects on the rest of the retail industry led to a 3.1% decline in overall consumer prices between 1985 and 2004. In 2004, consumers spent $263 billion less than they would have if WMT were not around, the study said. That translates to $895 per person, or $2,329 per household” (The H.W. Wilson Company, 2005, p.2).

Job Creation Is Walmart Good for America? 35

There are many factors contributing to the decline in consumer prices, but the most significant aspect is the company’s efficient use of capital and labor in its distribution and inventory system called Total Productivity Factor (TFP). WMT is more capital intensive than other retailers, and employee wages are not below market average. The company’s size alone warrants studying its effects. The company affects local labor markets, consumer prices, product selection, local and global competitors, and suppliers. Media reports often portray Wal-Mart as a “job destroyer”, but there is little evidence to support this view (W. Wilson Company, 2005.) The net effect on jobs was positive even five years after WMT’s entry, but it was quite small based on the conclusions of a study that involved selecting a sample of stores based on their opening dates. The data was combined with County Business Patterns data from the U.S. Census Bureau, which included the number of jobs in each county by sector and year for the period 1977–1999 to estimate WMT’s effect on the number of retail and wholesale jobs. After controlling for time-invariant county characteristics using county fixed effects and for different exogenous time patterns of employment for urban, rural, and suburban counties, the number of retail jobs in a county increased by 100 the year WMT opened a new store, and by 50 after five years. However, the number of wholesale jobs declined by about 30 in the long run, reflecting the fact that WMT was vertically integrated. Vertically integrated meant that unlike the merchants it replaced, WMT did not rely on local wholesalers (Basker, 2007.) WMT's wages lagged the retail-industry average by just a small margin considering that the bulk of its stores were located in low-income areas. About 90% of WMT workers were covered by a health plan, either through the company or a spouse's plan (Riper, 2008).

Economic Empowerment At the chain level, WMT’s scale has increased its market power in input markets. Size also empowers the company in any activity that involves a fixed cost, such as contracting with foreign suppliers. It can import at lower average cost than other retailers spurring further growth. The scale reduces the marginal cost of a sale. By using WMT’s data, elasticity of the marginal cost associated with an additional sale with respect to sales volume is approximately 0.2. A 10% increase in total sales volume decreases marginal cost by 2% (Basker, 2007). The conclusion of a report released by the Federal Reserve Bank of Minneapolis, which studied the "Wal-Mart effect" for 89 counties in its region over the past two decades. The study showed Is Walmart Good for America? 36 that between 1985 and 2003, personal income, overall employment and retail employment grew faster in counties with a WMT store than in those without one. An exchange of goods at lower prices benefited everyone. In the case of WMT, it seemed evident that its model of low prices was bringing more choices to consumers, which was why so many choose to shop there. The retail behemoth, which grew to dominance through a strategy of serving lower to middle income customers, had been one of the greatest success stories in American business history. Some economists gave it more credit than to Alan Greenspan for the low inflation of the past 20 years, given how greatly its low-cost model rippled through the industry and the economy (Riper, 2008).

Factual Research and Analysis Richard Theroux, President of the Independent Institute, lead a debate at the institute to get to the bottom of whether WMT is good or bad for America. Led by two leading experts, Richard K. Vedder and Ken Jacobs debated the issues surrounding this controversy. The Institute’s program works differently than the other public-policy institutes. The institute is more concerned with getting to the roots of issues based on current and proposed policies. In the debate, the experts criticized all of the controversial issues surrounding WMT in which each expert represented different sides of the arguments (Vedder, Jacobs, 2007)

Job Growth and Creation Richard Vedder agreed that when the big competitor WMT came to town, smaller shops went out of business and workers lost their jobs. There were also many plant workers lost their jobs because their manufacturer was no longer operating in the U.S. and moved manufacturing to create jobs in China, where WMT was buying those goods and supporting those jobs (Vedder, 2007). However, WMT created a lot of jobs with every new store employing around 350 workers. Vedder had done a research that involved zeroing in on stores that opened by assessing employment in communities the year before the store opened, and employment in the communities the year after it opened with consideration of other regional effects that may affect employment. He had found that in a majority of cases, there were more jobs in the community after WMT came to town than before. What’s even more interesting was that in era of WMT Is Walmart Good for America? 37 domination of retail in the 1990s and 2000s, the average unemployment rate in the United States was lower than the 1970s, which was before WMT had become a significant force in our life (Vedder, 2007).

Impact on Wages WMT’s wages had not been out of line with industry standards. Workers in the retail industry tend to be relatively inexperienced with less skills. There was one unusual attribute in the industry, many WMT employees owned common stock in the company. And turnover rates of employees had not been out of line with industry standards (Vedder, 2007).

Impact on Local Businesses While it might be true that smaller stores went out of business because of WMT presence in the area, but this was mainly due to consumer choice not to shop there. The consumer chose to shop at WMT, because it offered a superior product, more choices, lower prices, good parking, and ultimately fulfilled needs (Vedder, 2007).

Impact on Taxes Many viewed WMT as burden on taxpayers, because it occasionally received subsidies when the company moved into communities. Other retailers should also be criticized for receiving subsidies (Vedder, 2007).

Impact on the Environment The company had been assigning many resources to implement pro-environmental actions, such as depending on solar power and pressuring suppliers to be environmentally friendly (Vedder, 2007).

Impact on Economic Growth WMT should get the credit for enormously increasing productivity in retail trade. According to the Department of Labor, labor productivity in the retail trade industry rose nearly 8% in the year between 1987 and 2004. This meant that workers were turning out more goods per hour, which Is Walmart Good for America? 38 lead to rising standards of living, rising wages, rising prosperity for Americans, consequently raising our national output by tens of billions of dollars annually (Vedder, 2007). WMT also created something economists called “consumer surplus”, in which people would be able to get things that they would buy anyway for less money. As the ultimate American success story of the last century, WMT had been a great innovator in providing jobs, as well as higher standard of living through lower prices (Vedder, 2007). Ken Jacobs and Richard Vedder were in agreement on certain points of the argument that WMT had in fact revolutionized the retail industry, and transformed the logistics network. Its EDLP price model was proven successful to drive down prices (Jacobs, 2007).

Controversies Hold True Job Creation WMT’s employees raised concerns about the lack of access to full-time employment. Although the company claimed that fewer than half of its hourly-workforce employed part-time, available data painted a much different picture. According to recent reports from WMT to the Partnership for a Healthy America revealed that in the beginning of 2013 it hired 6,758 employees to work in newly built or remodeled stores of which 3,537 were part-timers (DSUSHCEW, 2013).

Walmart’s Wages and Benefits The Democratic staff of the U.S. House Committee on Education and the Workforce (DSUSHCEW) 2013’s annual report focuses on WMT’s low wages and the effects of this strategy on taxpayers and economic growth. According to the report, there continues to be a significant increase in income inequality and wage stagnation among the middle class, despite the substantial rise in corporate profits. By doing a straight wage comparison between WMT and other retailers and taking into account geographic distribution of the workforce, there is a 26% wage gap between them and other retailers (DSUSHCEW, 2013). One of the nice things about the company’s expansion, which is a beautiful part of their logistics model, is that the company expands out pretty concentrically from Bentonville creating a nice pattern of expansion. By looking at instrumental variables, such as distance and time, time and distance from Bentonville, the effect of WMT expansion reduces wages in general merchandise. The company plays a role in replacing those jobs and reducing wages in that grocery industry. Is Walmart Good for America? 39

All of this adds up to a 5% decline in health coverage in average per state, and 10% decline in retail earnings (Jacobs, 2007). WMT plays a leading role in this story since it has relied on controlling labor costs for such a long time exerting considerable downward pressure on wages throughout the retail sector and the broader economy. This model has multiplied across to other employers who seek to reap significant profits through the depression of labor costs (DSUSHCEW, 2013.) According to the most recently disclosed data, only about half of WMT associates are covered by its plans. The social cost of this low-wage does not only harm workers but cost taxpayers the funded public benefit programs. When low wages leave WMT workers unable to afford the necessities of life, taxpayers pick up the tab. Taxpayer funded public benefit programs make up the difference between WMT’s low wages and the costs of subsistence (DSUSHCEW, 2013.)

Competitive Advantage An MIT management professor, Zeynep Ton, has studied the retail industry for more than a decade and argues that the presumed trade-off between investment in employees and low prices is false. To support her claim, Ton offers the examples of higher wage retailers including QuikTrip, Mercadona, Trader Joe’s and Costco. These retailers engage in what Ton calls the “virtuous cycle” of investment in high quality labor, better operational execution, and higher sales and profits. These retailers offer higher pay, more opportunities for advancement, and more accommodating work scheduling, in return they enjoy lower rates of employee turnover and higher rates of customer satisfaction. The University of Michigan’s American Customer Satisfaction Index consistently ranks the level of customer satisfaction at Costco higher than WMT (DSUSHCEW, 2013). The employee compensation disparities between WMT and Costco apparently have not hindered Costco’s ability to compete. In Costco’s most recent quarterly earnings report, the retailer reported an 8% growth rate in year-on-year sales and a 5% increase in same store sales. By contrast, WMT experienced sluggish growth with a mere 1% increase in year-over-year sales for the most recent quarter ending April 30, 2013. A hypothetical 200-person WMT store cost taxpayers an estimated $420,750 per year. In recent years, the state of Wisconsin released data of Medicaid enrollment by employer on the fourth quarter of 2012. The data revealed that WMT ranked first on the list with 3,216 of employees (10% of WMTs employees in WI) enrolled in the Is Walmart Good for America? 40 state’s Medicaid program costing taxpayers $904,542 per year ($3,015 per employee) (DSUSHCEW, 2013).

Violating the Law and Social Rights WMT’s anti-labor practices went way beyond standard competitive measures. The company’s violations included hiring janitorial contractors; mostly illegal immigrants that pay sub-minimum wages, locking workers in the store overnight in violation of health and safety regulations, using child labor, meal-break violations, and the largest sex-discrimination suit in U.S. history (Jacobs, 2007.) The U.S. Supreme Court was hearing arguments in which WMT was accused of egregious and systematic discrimination against 1.5 million women who had worked there since 1998 (Wade, 2011).

In Table (4) earnings of WMT’s female employees ranked consistently lower for hourly and salaried positions (Wade, 2011):

In Table (5) WMT’s female employees were more likely to be in hourly jobs instead of salaried jobs in every district examined for the year 2001 (Wade, 2011): Is Walmart Good for America? 41

In Table (6), WMT’s female employees made less than men in every district examined in the year 2001 (Wade, 2011):

Part of WMT business model was an uncompromising hostility towards union organizing. According to Human Rights Watch between 2000 and 2005, the National Labor Relations Board issued 39 complaints accusing the company of violating the rights guaranteed to workers by the Is Walmart Good for America? 42

National Labor Relations Act (DSUSHCEW, 2013.) A quote from former WMT workers and managers: “Walmart’s relentless anti-union drumbeat creates a climate of fear in its stores. The company has sent managers to eavesdrop on employees. The company also orders the repositioning of surveillance cameras to monitor union supporters” (Jacobs, 2007).

Recommendations from the Democratic staff of the U.S. House Committee on Education and the Workforce Federal labor policy can play an important role in reversing these trends, stemming the growth in income inequality, driving up wages, and reducing taxpayer costs. The minimum wage should be increased to restore the value eroded by inflation. Strengthening equal pay laws can help close the gender pay gap. Economists have raised concerns that income inequality threatens economic growth and leads to crises. WMT’s profits have not translated into broad improvements in wages or benefits for its employees. In November 2012, WMT ranked first in 24/7 Wall Street’s “12 Companies Paying Americans the Least.” According to IBIS World, an independent market research group, the average hourly wage of a sales associate is just $8.8 (DSUSHCEW, 2013). Increasing wages at WMT and across the nation’s large retail sector will have a significant impact on two interrelated fronts: economic growth and deficit reduction. By increasing consumer’s income, consumers spend more, and need less public assistance, subsequently leading to a virtuous cycle that promotes economic growth while reducing the deficit through a larger tax base. (DSUSHCEW, 2013).

Commitments in Economic Renewal Bill Simon’s, WMT President and CEO, announced in the National Retail Federation 102nd Annual Convention & Expo that WMT has a job to do in American renewal. WMT takes responsibility to create jobs and support good retail jobs. Most importantly, the company is taking a new mission to create jobs for veterans and encourage local American manufacturing (Simon, 2013).

Creating jobs to Grow the Economy The company is committed to supporting good retail jobs and offering vast career opportunities. Entry-level jobs often lead to bigger jobs by climbing up the ladder from a stocker or a cashier to Is Walmart Good for America? 43 a department manager to a store manager and beyond. Depending on the time of year, there are between 15,000 – 50,000 job postings at WMT. In fact, the company promotes about 170,000 people to jobs with more responsibility and higher pay. About 75% of store management start as hourly associates, and their average pay is between $50,000 and $170,000 a year (Simon, 2013).

Honoring the Nation’s Veterans Beginning Memorial Day in May 2013, WMT has started offering a job to any honorably discharged veteran within his or her first twelve months off active duty. The company plans to hire more than 100,000 veterans over the next five years (Simon, 2013).

Driving More American Manufacturing Packaged foods contain unhealthy amounts of sugars, salts, and trans-fats composing a major adverse effects on consumer health. As the largest U.S retailer, WMT is stepping up and taking on responsibility for improving the healthfulness of Americans' diets. Since January 2011, the company has been offering a wider range of packaged product with reduced amounts of salt, sugar, and saturated fats by encouraging suppliers to produce as requested (Kirby, 2011). According to data from suppliers, items that are made here, sourced here, or grown here account for about two-thirds of what the company spends to buy products, and plans to invest more. WMT has the capability to encourage manufacturers in investing capital in America and revitalize the communities (Simon, 2013). WMT shoppers have also been able to save $2.3 billion by buying produce at its stores in the first two years of its push to sell healthier produce. The company is proud of this achievement because many customers are struggling to put healthful food on the table, especially with higher gasoline prices and payroll taxes (Wohl, 2013).

Final Remarks Is Walmart Good for America? 44

The question remains: Is WMT good for America? There is no white or black answer to this question. WMT has in fact reinvented the supply chain industry and created a ripple effect on the entire industry since the company’s inception in the 1960’s. WMT is also given the credit for reviving the economies of many small rural cities to a certain degree. WMT is the first retailer to develop a merchandising strategy beginning with the customer. The customer-oriented nature of WMT’s supply network has become a main component of any supply chain operation. Businesses’ desires to reduce waste and cost to drive down prices is a unique smart approach to empower the consumers’ purchasing power and enthuse their shopping experience. WMT has proven to be in the forefront of most technological advances. It has taken the lead in transforming the use of RFID to its advantage, despite the risk and complexity of implementation in distribution activities of Fast-Moving-Goods. It’s also the first retailer to effectively use electronic scanners for POS capture of items sold at the cash register, and EDI transmissions which considerably saves time, errors, and costs for the entire Supply Chain network. WMT is also given credit for inventing the small warehouses concept serving a cluster of stores, which has primarily facilitated the movement of inventory to the stores for WMT and other retailers that copy this approach. The Cross Docking is another distribution strategy that’s been invented by WMT to save time and money in inventory management. The WMT concept has grown larger than what we can imagine to the point that its presence impacts the economic well-being of the country. When WMT’s executives speak of new company initiatives, everyone listens in: suppliers, economists, politicians, competitors, and government officials on global and local levels. In other words, WMT’s new initiatives and strategies are taken into account by many giant retailers in the industry, and this is why WMT’s impact grows larger than anticipated. The company implements strategies that best fits its needs. Its EDLP strategy is possible due to the company’s lower overhead costs, such as operations and labor costs. But other retailers copy this low-wage approach to reap significant benefits through the depression of labor costs, although this approach may not be relevant to them. WMT now has a bigger responsibility not only in job creation and green sustainability, but also in changing many of their internal strategies to empower the purchasing power of their employees, consequently empower the economic system.

Is Walmart Good for America? 45

Appendix A Walmart Way Principles

Principle 1 Is Walmart Good for America? 46

Every successful venture begins with a dream that requires determination, passion, and willingness to grow if it is to be fulfilled. Principle 2 You must have a vision that allows you to see a bigger, better, stronger you in the future-while never taking your eyes off of who you are and what you are doing today. Principle 3 To build a great company, you must create a culture where everyone shares the same values, purposes, and expectations of success. Principle 4 True Success is achieved in direct proportion to the degree that an organization treats its people with respect and dignity and believes in them enough to help them grow. Principle 5 You will succeed when you make a commitment to help your customers succeed first. Principle 6 Achieving excellence becomes a reality when you set high expectations, humbly face and correct your mistakes, stay optimistic, and avoid the quicksand of complacency Principle 7 Your success is in direct proportion to your ability to plan, monitor, and ultimately execute all phases of your business Principle 8 To build a great company, you must actively and continually seek out, evaluate, and invest in the tools that best serve the people and aims at your organization. Principle 9 The most basic operations in your company represent tremendous opportunities for improvement, growth, and savings. Don’t overlook the obvious.

Principle 10 When you create win-win relationships with your business partnerships based on trust and open communications, you maximize your potential for growth. Principle 11 Is Walmart Good for America? 47

The ongoing success of your organization is in direct proportion to your ongoing commitment to grow. Principle 12 When you cultivate a spirit of charitable giving and civic involvement within your organization, you exponentially increase your tangible and intangible returns-including the personal character of your team (Soderquist, 2005, p.209-2010)

Appendix B

Fit Is Walmart Good for America? 48

2012 Financial Review Five–Year Financial Summary (source: Walmart 2012 Annual Report)

(Dollar amounts in millions, except per As of and for the Fiscal Years Ended January 31, share and unit count data)

2012 2011 2010 2009 2008

Operating Results

Net sales $443,854 $418,952 $405,132 $401,087 $373,821

Net sales increase 5.9 % 3.4 % 1.0 % 7.3 % 8.4 %

Comparable sales in the United 1.6 % -0.6 % -0.8 % 3.5 % 1.6 % States (1)

Walmart U.S. 0.3 % -1.5 % -0.7 % 3.2 % 1.0 %

Sam's Club 8.4 % 3.9 % -1.4 % 4.9 % 4.9 %

Gross profit margin 24.5 % 24.8 % 24.9 % 24.3 % 24.1 %

Operating, selling, general and 19.2 % 19.4 % 19.7 % 19.4 % 19.1 % administrative expenses, as a percentage of net sales

Operating income $ 26,558 $ 25,542 $ 24,002 $ 22,767 $ 21,916

Income from continuing operations 15,766 15,355 14,449 13,235 12,841 attributable to Walmart

Net income per share of common stock:

Diluted net income per common share $ 4.54 $ 4.18 $ 3.73 $ 3.35 $ 3.15 from continuing operations attributable to Walmart

Dividends declared per common share 1.46 1.21 1.09 0.95 0.88 Is Walmart Good for America? 49

Financial Position

Inventories $ 40,714 $ 36,437 $ 32,713 $ 34,013 $ 34,690

Property, equipment and capital lease 112,324 107,878 102,307 95,653 96,867 assets, net

Total assets 193,406 180,782 170,407 163,096 163,200

Long-term debt, including obligations 47,079 43,842 36,401 34,549 33,402 under capital leases

Total Walmart shareholders' equity 71,315 68,542 70,468 64,969 64,311

Unit Counts

Walmart U.S. segment 3,868 3,804 3,755 3,703 3,595

Walmart International segment 5,651 4,557 4,099 3,595 3,093

Sam's Club segment 611 609 605 611 600

Total units 10,130 8,970 8,459 7,909 7,288

(1) Comparable store and club sales include fuel. Fiscal 2008 comparable sales include all stores and clubs that were open for at least the previous 12 months; however, stores and clubs that were relocated, expanded or converted are excluded from comparable sales for the first 12 months following the relocation, expansion or conversion. Fiscal 2012, 2011, 2010 and 2009 comparable sales include sales from stores and clubs open for the previous 12 months, including remodels, relocations and expansions, as well as online sale

Appendix C Interesting Facts about Walmart

Is Walmart Good for America? 50

The following are interesting facts about Walmart (Spector, 2013, p.1): 1. In fiscal year 2012, WMT registered approximately $444 billion in sales, which is $20 billion more than Austria's GDP. If WMT were a country, it would be the 26th largest economy in the world. 2. If WMT was an army, it would have the second largest military in the world, behind China. 3. WMT is bigger than Home Depot, Kroger, Target, Sears, Costco, and K-Mart combined. 4. The average family of four spends over $4,000 a year at WMT. 5. Each week, WMT serves more than 200 million customers at more than 10,400 stores in 27 countries. 6. In 2010, CEO Michael Duke's annual salary of $35 million earned him more in an hour than a full-time employee makes in an entire year. 7. China's exports to WMT accounted for 11 percent of the growth of the total U.S. trade deficit with China between 2001 and 2006. 8. If WMT's more than 900 million square feet of retail space were spread out over one place it would take up roughly 34 miles, which is about 1.5 times the size of Manhattan. 9. WMT parking lots alone take up roughly the size of Tampa, Florida. 10. In 2000, WMT was sued 4,851 times, or about once every 2 hours. 11. The Walton family has given away about 2 percent of its net worth to charity — Bill Gates is giving away 48 percent of his net worth and Warren Buffet 78 percent of his net worth. 12. The most frequent destination typed into GPS device is WMT.

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